What are the Best Retirement Strategies for Me? Ep #162

Deciding to retire is just the beginning of your retirement decision-making. From tax planning to social security decisions, finding the best strategies for your retirement years requires regular analysis.

If you have any questions about transitioning into retirement, send us an email and we may address it on the show like we’re doing on today’s episode.

Today’s question comes from a client who recently read an article from Rethinking 65 titled Why Trying to Quantify Roth Conversions Is Futile. After reading the article the client wanted to know if they should take advantage of Roth conversions.

As we explore this question today, you’ll learn how you can decide whether Roth conversions would be a good fit for your retirement situation.

In retirement, you have more control with your tax situation

During your working years there is so much that is done for you, so now in retirement, for the first time, you may be inundated with decisions that you’ve never had to make before. You’ll have to create your own retirement paycheck, source your own healthcare pre-medicare, decide when to take Social Security and/or your pension, and decide which accounts to withdraw from first.

Having more control over your income and your tax situation can be liberating but at the same time, it can be overwhelming. There are so many moving pieces that it can be challenging to recognize which strategies are right for your situation.

Roth conversions could lower your lifetime tax liability

In retirement, you have more freedom to choose which accounts to pull from each year. Not only will you decide on the amounts, but you can also decide when and how to take that income. To choose when and how to distribute your income you’ll want to consider your other fixed income.

Once you establish a retirement income baseline, then you can start thinking about which strategies retirement strategies to use. Roth conversions are one tool to consider if you would like to change your future tax situation. However, it is important to understand that using Roth conversions means deliberately taking in more income so that you pay taxes at a lower rate now than you might possibly need to pay in the future.

It’s important to consider every aspect of your financial situation

Since taxes touch every area of your financial life, you’ll want to consider the tax impact before deciding whether doing Roth conversions would be a good choice for you. By deliberately raising your income you could affect your healthcare eligibility. Consider whether you are trying to stay under a certain income threshold to take advantage of health care tax credits or whether taking Roth conversions would put you over the IRMAA surcharge requirements.

Another area of concern would be whether your Social Security benefits would be taxable. To help you plan these decisions it is important to create a scenario analysis. Listen in to learn how to take advantage of the retirement tax window between the ages of 55 and 72. If you are still on the fence about whether to do Roth conversions, give us a call to see if we can help you plan your retirement.

Outline of This Episode

  • Cameron’s thoughts on the article [1:42]
  • When to take the income [3:48]
  • Look at other areas of your life when considering a Roth conversion [7:48]
  • Longevity risks that come with retirement [13:38]
  • How taking Roth conversions could affect Social Security [16:58]
  • Today’s progress principle [22:20]

Resources & People Mentioned

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